The Private Cost of Solar Power – 5/10/16

The arguments against solar energy are pretty straight forward and typically fall into four categories: private cost, societal cost, location dependence, and inconsistent energy generation. This article will look primarily at the private cost of solar, or the tangible costs associated with actually buying clean power, while tomorrows article will look at the others which tend to be harder to measure.

The main concern about solar power is that the cost of producing power from photovoltaic (PV) panels will never be equal to or less than buying from the grid a.k.a “grid parity” meaning the government would be using tax payer dollars to subsidize it so it could compete. The problem with that line of reasoning is that solar power costs are dropping fast.

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As the graph from Bloomberg New Energy Finance shows, the prices of wind and solar power have plummeted to less than half of what they were just five years ago. And most of this decline in price has come from permanent improvements in the underlying technology. In contrast to the recent fossil fuel price bust that is likely to boom back up once supplies contract, price reductions due to technological advances will never fade.

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Observing the chart from the National Renewable Energy Lab, it is clear that the cost of the “module” – the hardware converting sunlight to electricity – and the cost of the “inverter” – the hardware that converts the electricity produced from DC to AC so it can be fed into the power grid – both fell dramatically between 2010 and 2013. And now soft costs make up at least 64% of the total real cost of solar power comprised of sales tax  (5% of total), customer acquisition (9%), labor (11%), and other areas that, unlike technical barriers, could fall rapidly as supply chains and government policy become more well-established.

Unsubsidized power from utility-scale solar farms is already significantly below $40 a megawatt-hour in some region and, with a map of electric rates for the continental US, it is easy which customers would benefit most from lower electric bills.

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Adding a map of sunlight intensity distributions for the US gives an even better picture of where solar would do the most good.

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Unsurprisingly, areas with high electricity rates and a lot of sunlight like California, Arizona, and New Mexico are the first to reach the threshold for grid parity. The maps below show estimated parity points in the US as the price of installed solar falls. Though the total installed costs makes the assumption that current federal, state, and local incentives are constant, as well as the assumption that PV owners are compensated for their generation at standard rates for their area, the maps are still useful for identifying which regions are likely to turn to solar first.

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The current assumed price of $3.50/W for solar PV installation in the US already reflects a decline of PV costs of about 10% from 2014 according to data provided by the Solar Energy Industries Association. If the current trend of cost reduction holds, then the excitement of markets over the rise of solar will make sense to the general public very soon.

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